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The Incredible Shrinking Auto Loan Payment

In the past few years, auto loans have seen a big rebound, as more consumers regained confidence in the economy and decided to finance their car purchases. Now monthly payments for those seeking a new auto loan appear to be getting smaller.

The average monthly payment for an auto loan in the fourth quarter of last year fell for both new and used vehicles, according to new data from Experian Automotive. Thanks to falling interest rates and extended repayment plans, the average monthly payment consumers made for new cars slipped $8 to $460 in the final three months of the year, from in the same period of 2011.

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In particular, the average interest rate for a new auto loan fell to 4.36 percent over the course of 2012, from 4.52 percent at the end of the previous year, the report said. Meanwhile, average rates for used cars slipped to 8.48 percent from 8.67 percent over the same period of time. On the other hand, the life of a loan for new vehicles expanded to 65 months, an all-time high, from 63 the year before, while those for used cars held steady at 60 months.

“Overall, [the fourth quarter of] 2012 was a very favorable time for consumers to buy a new or used vehicle in terms of overall monthly payments,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “Lower interest rates and longer loan terms made it easier for consumers to finance a vehicle while keeping their payments affordable. This, combined with the fact that more vehicle loans went to consumers with credit outside of prime, portends a vital and healthy automotive market.”

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In fact, subprime lending increased nearly 10 percent to almost one-quarter of all new car loans issued in the fourth quarter of 2012, up from 22.59 percent the year before, the report said. There was a smaller increase in subprime lending for used vehicles, which ticked up 3.4 percent to 55.4 percent of all such financing, from 53.58 percent.

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